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Mahindra Signs Boeing Deal

MUMBAI -- Mahindra & Mahindra Ltd. has signed a deal to buy aircraft parts-making machinery from
Boeing Co.'s
BA 3.77%
plant in Melbourne, Australia, a senior executive from the Mumbai-based company said.

"I believe the equipment will be shipped to India by the end of this (calendar) year," Hemant Luthra, president of Mahindra Systech--a group entity that incorporates all of Mahindra's component manufacturing units--, told Dow Jones Newswires recently.

The company hopes the deal between unit Mahindra Aerospace Pvt. Ltd. and Boeing will boost orders as it will likely help improve the quality of aircraft parts it produces and attract clients that need to fulfil their offset obligations in India.

Under Indian law, foreign companies selected for government defense contracts have to source about 30% of the project value from local vendors if the project is worth 3 billion rupees or more.

The Indian government put an offset clause on a $15 billion, 111 aircraft deal signed in 2005 by national carrier Air India with Boeing and European manufacturer Airbus, so about 30% of the ongoing project will have to sourced locally.

Boeing also last year signed a $2 billion deal with the government to supply eight long-range maritime reconnaissance and anti-submarine warfare P-8I aircraft to the Indian Navy.

Mahindra plans to invest 2.5 billion rupees in its aerospace business over the next few years, with 1 billion rupees earmarked for aircraft manufacturing and the rest for making components.

Last year, Mahindra purchased 75.1% stakes in two Australian aerospace companies--Gippsland Aeronautics and Aerostaff Australia--for a total of 1.75 billion rupees ($37.9 million) to expand its aircraft and aerospace-component manufacturing capabilities in Australia.

Asked about the value of the deal to buy machinery from Boeing's Melbourne plant, Mr. Luthra said: "It's a slightly complex deal and I wouldn't want to get into a specific value."

A senior executive at Boeing India confirmed the deal, but didn't provide any more details.

Mr. Luthra said Mahindra is in talks with several other companies for possible acquisitions to expand its aerospace business, but he declined to elaborate.

The company also plans to establish an aerospace facility in India, possibly in the south Indian state of Karnataka, he said.

"We are on the verge of finalizing the land deal to set up the plant. It should hopefully be commissioned by late next year," he said.

Mr. Luthra added that Mahindra's aerospace business is expected to post revenue of $100 million a year once the new plant in India starts production.